03/08/1996 03:12 PM L&C

HB 501 - COMPETITIVE LOCAL PHONE SERVICES
HB 531 - TELECOMMUNICATIONS UTILITIES
CHAIRMAN PETE KOTT announced the committee would hear HB 501
"An Act requiring competition in local exchange telephone service,"
and HB 531, "An Act relating to telecommunications." He said the
committee may already know that earlier this year the U.S. Congress
passed some sweeping measures dealing with telecommunications and
telecommunication carriers. Chairman Kott stated there are a
couple of sections within the bill that are applicable to the state
of Alaska. Section 521 (A) poses a duty to interconnect with other
carriers. He noted this is the Deregulation Competition Act.
Section 521 (B) imposes a duty on local exchange carriers to resell
its services, to have number portability and to have dialing
parity. Section 521 (C) imposes duties on incumbent local carriers
to negotiate, in good faith, interconnect, have un-bundled access
and to resell at wholesale rates. Chairman Kott said those are the
general provisions; however, the federal act provides certain
exemptions and exceptions. For instance, rural telephone companies
are automatically exempt from the duties imposed in 521 (C) until
there is a good faith request for services or interconnection and
a state commission finds: (1) That it would not be unduly
burdensome; (2) That it is technically feasible; and (3) That it is
consistent with the act's position concerning universal service.
Chairman Kott said local carriers with fewer than 2 percent of the
nation's access lines may petition a local commission for a
suspension of its duties under 521 (B) and (C). The commission
must examine whether such an order is needed to avoid: (1) A
significant adverse impact on the user of services; (2) An unduly
burdensome economic impact; and (3) A technically infeasible task.
He pointed out that the commission must determine whether the
request is in the public's interest. He also noted that the
Federal Communications Commission (FCC) shall complete all actions
necessary to establish regulations to implement the requirements by
August 1, 1996. He noted that those are his introductory comments
as he sees the Federal Telecommunications Act of 1996, affecting
the state of Alaska. Chairman Kott said the intent is to have both
of the bills introduced and to review the various sections.
Number 375
REPRESENTATIVE NORMAN ROKEBERG asked if there were Senate companion
bills.
CHAIRMAN KOTT said he believes there is a companion bill for HB
501.
REPRESENTATIVE GENE THERRIAULT, sponsor of HB 501, said the federal
Act allows for an exemption from the competition based on a rural
setting. "Rural" is determined to be an area that serves less than
2 percent of hookups on a percentage basis of the nation. So
basically, that definition would allow all of Alaska to be
blanketed by this definition of "What is rural." Motions could be
made to keep competition out of the entire Alaska market.
REPRESENTATIVE THERRIAULT explained what he did in introducing HB
501 was to ask that the legislature make a policy call and a
determination with regard to one of the things that is considered,
and that is to try and deal with the question "What is in the
public's best interest. Is competition in the public's best
interest?" He said he believes it is. We've been in this battle
before when it came to Alascom versus GCI. Many of the arguments
the committee will hear will be the same kind of arguments heard
during that battle. Representative Therriault said if the
legislature made a policy call that competition is in the public's
best interest, the Alaska Public Utilities Commission (APUC) would
still have a number of things that they would still be able to make
a determination on. Those are if by allowing the competition
brings significant adverse economic impact, then the competition
could still be kept out of the market, if it was going to be unduly
economically burdensome or if it was technologically infeasible.
What he is asking in the passage of HB 501 is that we narrow the
scope of things that the APUC has to consider and take that issue,
which is very broad - competition versus non-competition, off the
table and make a policy call on it. Lets leave the other things
for APUC to consider.
REPRESENTATIVE THERRIAULT referred to HB 531 and said from
testimony given in the State Affairs Committee, there are some
things that he believes the two competing sides in this issue can
agree on and that the legislature also needs to put in statute. He
said he knows that the different groups have had informal meetings.
Representative Therriault said he believes some of the things we
can probably agree on need to be dealt with, but we haven't come up
with the language. One of them would be local rate adjustability
for the local exchange carriers to allow them to adjust their rates
more quickly as competitive forces come into their market. He
noted we need to be cautious, as currently the local exchange
carriers have a monopoly. If they suspected that somebody was
going to come in and compete in their market, they have the ability
to drop the price to rock bottom and squeeze out any competition.
So a person wanting to come in and compete in the market would
never have a chance to even get a toehold. Representative
Therriault said he believes the way that the APUC dealt with this
when it came to GCI competing in Alascom's market was to allow a
greater level of flexibility as GCI picked up more of the market.
REPRESENTATIVE THERRIAULT said there are questions about universal
service and eligibility for universal service. Currently, he
believes a determination has to be made that an exchange carrier is
eligible for universal service. He said he thinks the legislature
will be asked to do is to consider making a blanket policy call
that the local exchange carriers would be eligible to receive
universal service funding. Representative Therriault said he knows
that the local exchange carriers are frustrated, in general, with
the length of time that APUC takes to make determinations on rate
setting and other aspects that influence their business. He said
he agrees there might be some room for flexibility in the
consideration of crafting language that would be acceptable to the
long distance carriers and also the local exchange carriers.
REPRESENTATIVE THERRIAULT said he agrees there are probably ideas
put forth in HB 531 that he thinks, if the language was massaged,
would lead him to feel very comfortable with having it added to HB
501. He also stated perhaps there is some room that the language
in HB 501 could be modified so that we could come up with language
that would be acceptable to both sides if each side is willing to
give a little bit. Representative Therriault said what this boils
down to is arguing over access to market. Currently, we have the
local exchange carriers who pretty much have a lock on a particular
markets. It is certainly understandable that they want to protect
those markets as best they can. However, he thinks that Congress
has made a policy call that competition in those local markets will
be good and beneficial to the user, the person who has the
telephone in their home. He said he thinks the legislature should
make a policy call that they agree with Congress and are willing to
consider some statutory framework on how that competition is to be
allowed and managed.
Number 933
REPRESENTATIVE KIM ELTON said if the legislature adopts a policy,
would there be any need for the legislature to provide for an
exception in certain circumstances.
REPRESENTATIVE THERRIAULT said, "Well perhaps in particularly small
markets, but even then I would think that the allowance in the
federal legislation, you know, if it significant adverse economic
impact in that local market, if it is economically burdensome or if
it's technically infeasible. Those allowances to keep competition
out would still exist if 501 were to pass. We would have just
dealt with on a policy level here at the legislative level whether
competition, you know, that whole competition versus non-
competition - whether the competition is a good thing. But these
specifics -- if somebody could make a showing on these specifics
that competition should be kept out of a particular market, they
could make that case."
Number 1021
REPRESENTATIVE ROKEBERG asked Representative Therriault to comment
on the 2 percent provision. He asked if the Alaskan delegation had
anything to do with that.
REPRESENTATIVE THERRIAULT said it is his understanding that
happened at the very end of the deliberation on the federal
legislation. Representative Therriault referred to when Mr.
Comstock, from Senator Steven's Office, was in Juneau to give his
briefing, he wasn't sure exactly how that exemption was written
into the federal law.
REPRESENTATIVE GENE KUBINA referred to competition in small towns
and asked if he means another telecommunications company would be
able to offer someone, such as the school district, a package
cheaper than what the local one does.
REPRESENTATIVE THERRIAULT said he doesn't believe that would be
allowed because in order to access the local market, you have to be
fit, willing and able to serve the entire market. For example, in
Fairbanks, if GCI or AT&T Alascom felt like the rate that they were
being charged for access into that market was too high, they could
put together an operation to come in and serve the whole area and
do it at a lower level. Whether they would do that or not, he
isn't sure, but the possibility that they would have the right to
do that may force FMUS to make sure that the rates they're charging
are really competitive. He noted that by being competitive, they
may be able to keep others out because nobody can come in and
actually provide that service to that complete market at a lower
rate.
Number 1200
REPRESENTATIVE KUBINA said, "So you think that under this -- you're
bill is really a policy statement sort of I think the APUC is at --
but by the way it's written, if it would damage the rest of the
place -- in other words if you took off the cream of the crop and
that would cause residential normal every day people's rates to go
up, APUC would not allow that to happen."
REPRESENTATIVE THERRIAULT said exactly. If somebody wanted to come
in and put together a completely new service in the Fairbanks
market, but it caused people's rates to go up, you could make an
argument that this would be a significant adverse economic impact.
You would have to argue those economics.
REPRESENTATIVE KUBINA asked what the APUC's current policy is
towards competition.
REPRESENTATIVE THERRIAULT said he isn't sure he could answer that
question adequately. Currently, the competition with the local
exchanges have an monopoly. It wasn't until the change in the
federal law that this changed. He said he is unsure whether they
have a policy with regards to local exchange carriers. It may all
be new enough that they haven't developed that policy yet.
Number 1320
GEORGE DOZIER, Committee Aide, House Labor and Commerce Committee,
read the following statement into the record:
"Early this year, Congress passed and the President signed the
Telecommunications Act of 1996. The sweeping provisions of this
Act have the potential of revolutionizing the delivery of
telecommunications services throughout the United States.
Injudiciously applied, however, they also have the potential of
adversely affecting the delivery of affordable universal service in
small markets. Relatively speaking, Alaska is a small market.
"In recognition of the potential for an adverse impact in smaller
markets, the federal Act provides exemptions from some of its
provisions, such as the duty to interconnect, for rural telephone
companies. It also establishes criteria by which a local
regulatory board may terminate this exemption. In addition, the
federal Act grants local exchange carriers with fewer than 2
percent of the nation's subscriber lines the ability to petition a
local regulatory board to modify or suspend their duty to conform
to some of the provisions of the federal Act. Again, the federal
Act establishes criteria for determining whether such petitions are
granted. Alaska telephone companies, under criteria established by
the federal Act, can qualify for exemptions, as well as
modifications and suspensions. The APUC will be faced with these
questions in the near future. Thus, a statutory and regulatory
framework must be created.
"House Bill 531 is intended to fill the statutory and regulatory
void created by the federal Act. It recognizes that competition is
desirable, but it also emphasizes that the state, in moving towards
more competition, must not neglect a need to provide universal
service at affordable rates. Its intent is to address issues that
have been reserved to the states by the federal Act and thereby
assist in making an orderly transition from a regulated industry to
a competitive market environment. Your support is urged."
CHAIRMAN KOTT noted there is a proposed committee substitute dated
3/6/96, Cramer, Version F.
Number 1434
REPRESENTATIVE ROKEBERG moved that the committee adopt, for
purposes of discussion, CSHB 531(L&C), Version 9-LS1720\F, Cramer,
3/6/96. Hearing no objection, CSHB 531(L&C), Version 9-LS1720\F,
Cramer, 3/6/96 was before the committee.
JACK RHYNER, President, TelAlaska, Incorporated, was came before
the committee to address the issue. He noted his company operates
two local exchange companies in 21 communities across the state
from Fort Yukon to Little Diomede Island to Kodiak and out to Dutch
Harbor. Mr. Rhyner read the following statement into the record:
"I applaud the efforts of this committee to provide the framework
for the implementation of the Telecommunications Act of 1996.
Without the legislative guidance and direction provided by HB 531,
the Public Utilities Commission will simply be incapable of
responding to the requirements of the new federal Act. Unless the
legislature affirmatively decides the policy questions answered in
HB 531, the Public Utilities Commission will be preempted by the
Federal Communications Commission as required by the Federal Act
and the state will relinquish control over what is in the best
interest of the people in the state of Alaska.
"Questions may arise about the necessity of passing this
legislation in this session. It is vital to promote competition
and insure the continued availability of universal service. There
has already been an application by AT&T to compete with the
Anchorage Telephone Utility (ATU) in Anchorage. In accordance with
the federal Act, negotiations on the terms for the use of ATU's
facilities must be completed in six months. At its public meeting
on February 27, the APUC discussed these issues and decided that a
year is a reasonable amount of time to promulgate regulations to
allow for competition. Given these time frames, ATU will be faced
by competition for at least six months and will not be allowed to
compete. Rather than allowing the APUC to apply or disregard
existing regulations where and when it sees fit, the legislature
should affirmatively promote and allow competition by allowing the
incumbent local exchange carrier to compete. Competition requires
the passage of HB 531.
"In the case of the rural areas, the authors of the federal Act
provided an absolute mandate to maintain the availability of
universal service at affordable rates. Toward that end, Congress
provided a number of waivers and exceptions whereby the state
Public Utilities Commission must make a public interest
determination based on the conditions in each individual rural
serving area. The reason for this is that most local telephone
companies serving rural areas receive support from the universal
service fund to maintain affordable rates. Competition in rural
areas would not be in the public interest if it reduced that
support or in any other way raised rates for rural consumers.
Competition does not reduce costs, it moves prices towards cost.
In most rural areas the cost of providing service is six to eight
times greater than the rates paid by consumers. It also makes no
sense to use a subsidy to fund duplicative facilities or multiple
carriers. The Alaskan legislature should do no less than to
reaffirm the policy to maintain availability of universal service
at affordable rates."
MR. RHYNER referred to the matter of public interest determination
that is proposed in HB 501 would basically gut all the protections
that were left in the federal bill for the rural communities. He
noted that attached to his prepared statement is a letter from
Senator Ted Stevens which explains that the public interest
determination has to be made on a case by case basis. Mr. Rhyner
said he thinks there was a misunderstanding on what that public
interest determination means. It does not mean you would stop
competition. There can be no barriers to entry. If someone wants
to go out there and serve, they're allowed to do that today under
that Act. Mr. Rhyner said what we're talking about is the
determination as to who will be eligible carriers and able to get
universal service funding, the subsidy that flows to keep rates
affordable, and exceptions to rules for interconnection. He stated
that is all that determination can do. It cannot stop anybody from
going out and competing in these markets.
Number 1740
MR. RHYNER said basically the purpose of HB 531 is to encourage
competition by allowing the incumbent carriers, where competition
develops, to compete and not be held down by regulation. The idea
is to promote advanced telecommunications technology and have the
Public Utilities Commission maintain universally affordable
services in the rural areas. It also shortens time frames for the
commission to react and deal with certain situations. There is a
number of different lengths of time for them to do things in the
bill. Mr. Rhyner said currently it takes an inordinate amount of
time to get through rate cases, expand your service area, or
resolve any other issue that you take before them.
Number 1813
REPRESENTATIVE ROKEBERG asked Mr. Rhyner to educate the committee
on the present state of affairs as it relates to universal
services, charges, and subsidies that his business is getting. He
also asked him to explain how that relates to the more urban areas
of Alaska.
MR. RHYNER informed the committee that Anchorage doesn't get any
universal service support. He said PTI, which serves in Juneau,
does receive support because it serves in other rural areas. It
has to do with how you calculate the cost of providing the service.
He explained there is about $50 million annually worth of universal
service support flowing into the state of Alaska. Mr. Rhyner
explained that part of the $50 million is collected in local
service monthly bills and part is collected from the long distance
carriers throughout the country.
Number 1883
CHAIRMAN KOTT asked how many local exchanges there are in Alaska.
MR. RHYNER said there are approximately 230. He noted he would
provide the committee of a list of all the exchanges by size and
number of lines in each one.
Number 1906
REPRESENTATIVE BRIAN PORTER said, "Over simplification, I guess,
the position that you're saying so that I'm sure I understand it,
in a normal competitive environment if there is one supplier with
service and then another one comes in, they will meet the costs of
the service by reducing the price, if that is case, if the price is
more than the cost to its lowest common denominator and still make
a profit and be able to exist. But what you're saying is in rural
Alaska the cost is up here and the price is down here because of
the supplemental income to that area because of the universal
service requirement. And competition where it normally would be a
function of reducing prices wouldn't in that situation."
MR. RHYNER said that is exactly right.
Number 1970
HARRY M. SHOOSHAN, Consultant, Strategic Policy Research,
Incorporated, testified via teleconference. He said he wants to
commend the legislature for providing the teleconference service.
He referred to testifying before the committee at an earlier date
and said major events have taken place since he last testified.
One major event is the enactment of the sweeping new federal
statute, the Telecommunications Act of 1996. That bill is a
product of over two decades of bipartisan efforts at the federal
level to rewrite the Communications Act that has been on the books
since 1934, but its root really went back to Nineteenth Century
railroad regulations. The objective of the new law is to open all
markets to competition. He stated all markets and not just local
exchange, long distance and video or cable television. The impact
of the new law has been evident already in Alaska as was noted
earlier by AT&T Alascom's request to finally enter the local
exchange market in Anchorage.
MR. SHOOSHAN said it is important to note that the new federal law
doesn't achieve its objective by means of a slash cut. Rather it
seeks to provide a balanced and equitable transition to the world
(indisc.) and (indisc.) to (indisc.) full and fair competition.
Much of implementation of the legislation is left the Federal
Communications Commission (FCC) and a lesser but still an important
amount to state commissions like the APUC. Mr. Shooshan explained
the new law is a clear statement of legislative intent and
direction to the regulators about how Congress wants the transition
to take place. He said he thinks the legislature has done a much
better job than Congress in updating the state telecommunications
laws, but the time is right to consider further honorization of the
Alaska statutes. Mr. Shooshan said HB 531 has much to recommend
and to him is far preferable than the approach taken in HB 501. He
said he believes HB 501 is overly simplistic and obviously focused
on one-half of the competitive equation. It attempts to short
circuit federal (indisc.) and to implement a slash cut approach.
The nature of competition, whether that competition is (indisc.),
fair, encourages only efficient competitors and truly suits service
consumers - that is whether competition is in the public interest,
will be determined by the nature of regulation. (Indisc.) is now
(indisc.) our competitors are allowed to enter but also by the
terms and conditions of entry, for example, it was discussed
earlier, "New entrance in (indisc.) has a duty to serve all." He
said he doesn't think that is by any means clear. Mr. Shooshan
said previously someone suggested, and will probably do so today,
that the APUC has all the authority it requires and has all that is
needed is an expression of the intent of the legislature.
MR. SHOOSHAN said it is important for the legislature to provide
direction and guidance to the APUC on how the legislature wants the
transition of competition handled in Alaska, especially given the
unique interest of the state with its rural population and physical
separation from the Lower 48. In providing that direction and
guidance, Mr. Shooshan urged the committee to seek and achieve the
same balance and equity that Congress seeks to achieve in the new
federal law. House Bill 531 addresses a series of important
transitional issues, including price regulation and other
nontraditional forms of regulation. He referred to pricing
flexibility for competitive services, deregulation yet removal of
all regulation where appropriate, preservation of universal service
as well as steps used to make certain that the long distance market
in Alaska have become competitive and said these are all areas
where the new federal law invites the state to take action
consistent with achieving full and fair competition. He urged the
legislature to accept that invitation by enacting legislation along
the lines of HB 531. While the transition itself need not take
long, it should be balanced and fair to all parties. Mr. Shooshan
thanked the committee for listening.
Number 2220
CHAIRMAN KOTT asked Mr. Shooshan to indicate which group he is
representing.
MR. SHOOSHAN said he is representing ATU. He noted his firm
Strategic Policy Research, Incorporated, is a consultant to ATU.
CHAIRMAN KOTT asked if other states are proceeding ahead in
implementation of the federal Act.
MR. SHOOSHAN answered yes. He said subsequent to the passage of
the federal legislation there are several states that have taken up
their own legislative initiative. Mr. Shooshan said while some
states are acting in the aftermath of the federal bill to update
their statute, many states predated the federal legislation by
adopting many of the provisions that are in HB 531.
Number 2438
JAMES ROWE, Executive Director, Alaska Telephone Association, was
the next witness to come before the committee. He stated that the
Alaska Telephone Association represents 22 local exchange companies
in Alaska. He said the federal telecommunications legislation that
was signed by the President dramatically changes the policy of
telecommunications in our country.
TAPE 96-18, SIDE B
Number 001
MR. ROWE indicated he is testifying on behalf of the 22 local
exchange companies in favor of HB 531 and in opposition to HB 501.
The said the emphasis of the federal telecommunication legislation
is competition, but it is also universal service. He said
universal service means that there is a package of
telecommunications products goods and services that reaches out and
is accessible to virtually all the citizens in our nation. That is
a policy that has not changed through competition. Competition is
a tool just as regulation has been and the goal of both those tools
is the same thing and that is to deliver the best
telecommunications service possible to as many citizens of our
country as possible. Mr. Rowe said that is not pure competition.
He stated that Reed Hunt, Chairman, FCC, in a speech about ten days
ago said that pure competition and universal service are not
compatible. He said that doesn't negate at all the aspect that we
entering a new environment in federal telecommunications, it is
competitive built.
MR. ROWE said the Alaska Telephone Association has worked very hard
to come up with some of the ideas in HB 231. He pointed out that
the federal legislation is over 270 pages long. The bill that is
currently before the committee seems long, yet in comparison it is
very small. There are many intricate issues involved and many will
be dealt with before the FCC and the Alaska Legislature has the
opportunity to deal with some of them. However, if the legislature
decides not to deal with them, they will still be dealt with before
the FCC. There are federal mandates to the state and if the state
doesn't grab hold of them and run with them, the federal government
will. We can be assured there will be changes, and as indicated by
AT&T's announcement last week, the changes are already here. He
stated AT&T, under the bill, can come in and compete with ATU. Mr.
Rowe pointed out ATU can't compete because they're still regulated
under this commission. There is only one competitor, per se, in
that market and one entity that can be competed with.
MR. ROWE explained HB 531 initiates or puts limits on time frames
for the APUC to react in competitive environments. If they don't
react, a regulated utility has no opportunity to compete. He said
they call them monopolies and indeed they are, and yet they were
not and are not monopolies by desire. That has been the regulatory
format they've been under. Oftentimes, as Mr. Rhyner mentioned,
many of the customers in Alaska are served in very high cost areas.
They're served at costs that are far higher than the rates they are
paying, but this is part of the concept of universal service and
it's not a universal service to these individuals, but a universal
service to the telecommunications network in our country. For the
public good of our country, it is a benefit that all of our
citizens are able to participate. This is part of our economy,
this is part of our social interaction. For those people in more
urban areas of the country that are contributing a very small
amount towards what is the universal support system, they're not
subsidizing, they're paying for opportunity to access that rural
customer - the person they're doing business with, the grandparent
or grandchild who lives in a high cost area.
MR. ROWE referred to HB 501 and said it suggests that we should
determine that competition will always be in the public interest
and this will satisfy the federal legislation because public
interest is a criteria of decision making. He stated if this
legislature decides and writes into statute that competition is in
public interest, the federal level will be satisfied. Mr. Rowe
said he would also suggest that in Washington, D.C., we had enough
federal legislators that decided that rural communities and high
cost areas throughout the United States, not just in Alaska, should
be accorded consideration because as Reed Hunt suggested
competition might not be in the public interest in all of these
areas. These area are open to competition. Mr. Rowe said he would
suggest to the committee that he would feel, as an Alaskan citizen,
far more comfortable knowing that his state legislature and his
public utilities commission is going to decide if it is in his
public interest to have competition and that they will take a tool
that was given to them by the federal legislature and use it. He
said he hopes that those who are representing him on a far more
personal basis will consider that public interest should be a
determining factor before we allow something that is going to be a
very significant change. Mr. Rowe thanked Chairman Kott for the
opportunity to come before the committee.
Number 275
REPRESENTATIVE ROKEBERG asked Mr. Rowe if the passage of HB 501
would jeopardize universal services. He questioned if so, how.
MR. ROWE said he thinks it would jeopardize universal services
because the opportunity for a public interest determination that
the federal legislation allows us to make in all rural areas will
already be made by statute and it will not be a consideration. If
perhaps we have some rural areas where it would be very much in the
public interest in this state for a competitive environment. He
said they would like for our public utilities commission to be able
to make that determination. However, if there is another rural
area where it would be disadvantageous for the public and drive
costs up so that some of the people would have to drop off the
telecommunications system because of cost, they would be likely
argue that it is not in their public or personal interest to have
competition.
Number 336
REPRESENTATIVE ROKEBERG asked how the federal statute would impact
the universal service support nationally or in Alaska.
MR. ROWE said, "There are the opportunities for that fund to grow
larger. That fund is still there. Carriers designated by public
utilities commission as eligible carriers, which is a new term in
this legislation, and to be eligible can only be eligible for
something - that is universal service support, whatever that
nature. Competitors could both have access in an area to universal
service support, however, you certainly have some fixed costs and
if the rate that the customer is paying for local services lower
than the cost of delivery of that service, and you have to
essentially subsidize, two entities out there delivering
competitive services -- certainly the universal service support
fund is going to increase. I would feel like when that gets so
large, it is certainly going to be a target and it is already for
the FCC to wonder if it is too large, if there is too great a
contribution. And I would suggest that perhaps we've already met
penetration levels in this state that are as high as we're going to
see for many years - and penetration level is the percentage of
families that have access to a telephone."
Number 394
REPRESENTATIVE ROKEBERG asked Mr. Rowe if he was suggesting, for
example, if U.S. West or AT&T wanted to come in and start providing
service that the existing local exchange and the large
international type carrier would be both qualified for the
universal service support because they'd be servicing a small area.
MR. ROWE said if they are serving it at a cost that is greater than
they're able to get they could be designated by the commission as
an eligible carrier. He said it is the geography, the cost and the
service area. Mr. Rowe said Anchorage is not rural it is under a
2 percent clause that is in the legislation. It has other hoops
and hurdles it has to jump through for competition than the truly
rural areas of Alaska. He noted that in the federal legislation
very explicitly designates the criteria. He said the 2 percent
figure was an amendment that was originally initiated, he believes,
by Senator Stevens.
Number 470
REPRESENTATIVE ROKEBERG questioned what would be the effect in
Alaska if HB 501 or HB 531 isn't passed.
MR. ROWE said AT&T can come in and compete, ATU is regulated and
cannot compete. He explained that our public utility commission
can, under some sections of the federal bill, react and prepare for
competition, and will be usurped by the FCC because it hasn't acted
in a timely manner.
Number 506
REPRESENTATIVE KUBINA asked if the APUC couldn't unilaterally as a
commission make a policy decision on their own.
MR. ROWE said, "I think they certainly could. They make policy
decisions all the time. I absolutely agree with that. One thing
that you will see that House Bill 231 addresses is the time frame
it takes our public utility commission to make some time and that
was mentioned earlier. If they don't make it in the appropriate
amount of time, they didn't make it at all because it has been
usurped, and not only has it been usurped by the FCC but what you
now have is your local telephone company that is not allowed to
react because they are regulated - might be out of business - will
certainly have its service deteriorate. And rather than (indisc.-
coughing) to that company let me say that the customers that are
receiving telecommunications from that company, especially in the
more rural areas, can be severely disadvantaged."
CHAIRMAN KOTT asked that the record reflect that during Mr. Rowe's
testimony, he referred to HB 231 and it should be HB 531.
Number 585
REPRESENTATIVE ELTON said the sponsor of HB 501 seemed to suggest
that there may be elements of each that could be married to come up
with a more perfect bill.
MR. ROWE said as far as merging the bills, the committee members
have before them one very neat looking bill and one very cumbersome
looking bill. The very neat looking bill certainly isn't all
encompassing. He said the very ugly looking bill by its length
doesn't answer every question nor does the federal legislation. As
far as merging the bills, he sees only one issue in HB 501 and
multitudes of issues that are addressed in HB 531. Mr. Rowe said
he sees no advantage for himself or for the citizens that are
served by the members of the Alaska Telephone Association, to have
a public interest determination, disregard it.
Number 657
REPRESENTATIVE THERRIAULT said, "When the legislature involved
itself in the GCI and Alascom argument, basically the problem there
was the APUC couldn't deal with the question of competition versus
non-competition, that there was no forward movement on that. When
the legislature entered in and made that determination - that
policy call, they didn't at that time to my recollection, perhaps
you can clarify this, set out a whole -- the concern that Alascom
had or GCI has was that AT&T or Alascom controls the market. Now
that you say that there is competition, they'll drop the rates
down, they'll do things to keep us out of the market. The
legislature didn't put out a whole framework on how that
competition was to gradually to be fostered, but the APUC went
ahead and did that and as far as you know made adjustability.
Didn't the APUC make determinations on its own without framework by
the legislature on how to protect that, you know, bud of
competition and let GCI get into the market and control things --
control Alascom for awhile until we actually got competition and
we're actually take the rate controls off of Alascom. And I guess
-- I see that -- I understand the issue of rate adjustability and
it's important to you. I think in the case of the long distance
carriers competition, APUC stepped in and took care of that. If it
makes you feel more comfortable to put something in statute, I
guess I would be agreeable to doing that, but I don't know that it
is absolutely necessary. I think we're (indisc.) with this whole
question once before and it all turned out O.K. If you're a little
bit concerned that it might not all turn out O.K. at the local
exchange level -- that's why I indicated I'm willing to, you know,
add things to the bill and put things in statute. I don't know
that's absolutely necessary though because the same types of issues
were dealt with before when it came to the competition of the long
distance services. I guess that's a rambling dissertation, I don't
-- and I guess my question is if you felt like the APUC dealt with
that issues adequately on its own with regards to the long distance
service and is it absolutely necessary that we have a statutory
framework to make sure that they do that again?"
MR. ROWE said, "Representative Therriault, Mr. Chairman, very easy
question for me to answer. First of all my history in Alaska
doesn't go back that far, I wasn't here for it, and I think there
are people in this room that can more thoroughly and accurately
address that. I will say we have competition in long distance. We
have an oligarchy. I think you'll find competition in
telecommunications, that has been initiated by the federal bill,
will be far more extensive than what we have seen here in long
distance. Did the commission act - I don't think I'm able to
really answer your question since I wasn't here for that time. I'm
sure I've heard different viewpoints on it, but not having been
here at the time I don't think I need to tell you what other people
have told me. It is a different scenario than it was then. It is
getting different now. And do we have to -- do we have to have
that protections? We can all hope and certainly we do - that the
APUC will make the correct decision in every instance. Recognizing
human frailty and error sometimes, I would like to think that they
have as much help in guidance as is possible and I particularly am
concerned that we do have an issue of public interest that we don't
take advantage of, that we might have an opportunity for a public
interest determination. And we might say, but we don't really need
this. I'd like to keep it there and if it can in each case be
quickly whisked away and say, `Yes, competition is in the public
interest in that area,' I think that's fine. We don't want it to
be a stumbling block. 531 is a pro-competition bill, looking at
flexible rates as you've noted. It is looking at shorter time
frames for the commission so that we can have competition so that
all parties in that market can act. I'd be very concerned that the
incumbent -- my understanding from history, and I might well be
wrong was GCI was a small entity coming into a large monopolistic
situation. I really don't see ATU as a large monopolistic entity
that is being challenged by a unique little competitor - AT&T. I
don't think those of us that have dwelled on the federal
legislation the last three years and worried about what's going to
happen to AT&T and say, `There is a 800 pound gorilla,' I don't
think we have any concept of how big that gorilla is and I think
that the idea that a carrier is up here in this state, at this
time, and that's a dominate carrier, and we have to curtail them if
U.S. West wants to come in. I think we've completely misjudged the
situation."
Number 958
MARK FOSTER, Principal, Mark A. Foster and Associates, was next to
come before the House Labor and Commerce Committee. He informed
the committee Mark A. Foster and Associates is a consulting firm
specializing in utility regulatory matters. He noted he was a
former commissioner for the Alaska Public Utilities Commission
during the implementation phase of the opening of the entry into
the long distance market in Alaska. Mr. Foster said he is
appearing on behalf of ATU.
MR. FOSTER said he would like to offer the committee sort of a
brief general overview of what he calls the "Legislative Phone
Wars" that are now on the table. He said he thinks there are three
basic alternatives that the committee has before them. He stated
he thinks there are possibilities for some combinations of the
alternatives to occur. If nothing is done, the federal rules set
the boundaries for local phone markets today. They do that in a
couple of ways. One is the federal rules govern interconnection to
the local wireline facilities and talk about the rates that will
govern that. The federal rules have also opened up the local
market by way of cellular franchises and personal communication
service (PCS) franchises which are deregulated services that do in
fact provide service in local markets today. Mr. Foster said those
are two aspects that are at play if you nothing that competes in
the local market.
MR. FOSTER said, "If you don't do anything, the existing APUC rules
and the way they've interpreted basically keep a fairly heavy break
on the local phone companies ability to compete. It takes a long
time to process. Largely that is the nature of a committee of five
dealing with a lot of controversial issues. It doesn't happen very
quickly and there are divisions within the commissioners. If you
do nothing, the in-state long distance market, still governed by
the 1990 legislation that was designed to open entry, and based on
that legislation the APUC has let GCI, Sprint and some other
resellers into the market, but the APUC has kept the local Alaskan
phone companies out of that long distance market based on the the
urging of some of the long distance carriers. There are a number
of issues there but the bottom line is today those local companies,
some of which who have been interested in going into long distance,
haven't been allowed to by the APUC."
MR. FOSTER said if you do nothing, the status quo holds the local
phone companies in a bit of a regulatory vice compared to AT&T and
GCI. Simultaneously the federal rules give AT&T and GCI the
ability to launch assaults on the local market, not only thorough
interconnection but also through wireless.
MR. FOSTER said HB 531 provides some relief to the local phone
companies who are caught in this regulatory vice and allows them to
begin to respond to some of the competitive forces that they see.
Basically, that bill reduces some of the burdens on both the local
and long distance carriers because it does apply to both with
respect to regulatory burdens and it allows local phone companies
to apply for long distance service on the same basis as other
carriers.
MR. FOSTER referred to HB 501 and said it is really aimed at
tightening the vice a bit on the local phone companies by
eliminating their ability to argue about public interest
considerations with respect to interconnection disputes.
MR. FOSTER said basically all the companies are seeking what he
would call a fair advantage over the other guy. They're all
looking to get a little bit of the edge and they're each going to
call it a level playing field in their own way.
MR. FOSTER encouraged the committee to adopt legislation that opens
markets and allows people to compete in a rapid manner and in a
manner that you think of when you think of competitive markets in
other arenas in Alaska. Mr. Foster said he thinks in order to do
that, you have to provide the local phone companies with the
opportunity to have pricing flexibility to be able to compete with
some large well healed companies, not just AT&T and GCI but cable
companies who are right on the door.
MR. FOSTER said the legislature also needs to provide the APUC with
a clear signal that the local phone companies should be allowed to
compete in the long distance markets in Alaska and they shouldn't
have to spend years in the hearing room to get there. That may
require some additional negotiations in terms of what terms local
companies need to meet in order to get into the long distance
business and that should be accelerated and not stalled as it
appears to be today. He thanked the committee for listening to his
testimony.
Number 1234
CHAIRMAN KOTT said if a long distance company wanted to get into a
local market, absent any state legislation, can the APUC grant that
authorization based on the requirements in the federal
telecommunications law.
MR. FOSTER indicated the APUC could. He said he thinks ATU falls
into a separate category from the rest of the local phone companies
by virtue of the way the federal legislation is constructed. In
the case of ATU, anyone can ask for basically interconnection and
ATU has the ability to ask for modifications and exemptions from
interconnection requirements if they feel they're economically
burdensome - technically infeasible, but the burden is on ATU to
make that case. So that is the basic terms of the debate for ATU
versus somebody come into their market for wireline facilities.
Wireless is basically deregulated and that game is already going
on. With respect to the other smaller local phone companies and
people going into their markets for wireline competition, he would
suggest that they have a higher burden to get into those markets.
He said that is the concern that long distance carriers, such as
GCI and AT&T might be looking at - those exceptions, because they
have higher requirements to get in there so the burden shifts and
the rural companies have more protection. He said he thinks the
aim of HB 501 is to try and reduce that level of protection.
Number 1337
REPRESENTATIVE PORTER said he is hearing from people testifying is
that the federal Act does not provide total competition to the
extent that ATU without statutory allowance cannot compete with the
long distance providers.
MR. FOSTER said the state statute provides for open markets. The
commission has interpreted that to be open markets subject to
conditions because of the unique circumstance of the local phone
company having control over wireline facilities. As a result, the
APUC has not allowed any of the local phone carriers into long
distance under the existing statutory framework.
Number 1395
REPRESENTATIVE PORTER asked Mr. Foster if he is saying that by
allowing a local carrier into the long distance it would tilt the
playing field to the extent that they would have a definite
advantage over a long distance carrier in competing with those two.
MR. FOSTER said if the long distance carrier was not otherwise in
the local market, he would say from a business perspective, the
local would have the advantage over the long distance carrier. He
said this gets back to the debate at the federal level. The Bell
Operating Companies versus AT&T and MCI, and the cable companies
were on the side. Mr. Foster referred to who gets to go into whose
market, and when, was a lot of what the argument was about. It
was, "When can the Bell Operating Company go into long distance
against AT&T and MCI versus when does AT&T and MCI get to go into
the local." Mr. Foster said a great deal of legislation at the
federal level that was just passed talks about those issues. He
said for Alaska, the federal legislation that just passed provides
for interconnection with exceptions because of the size of the
carriers are smaller. The terms of the debate in Alaska are about
those exceptions and whether the local phone companies would be
able to leverage those exceptions to gain some advantage in the
interconnection negotiation or whether the long distance carrier
would be able to leverage those exceptions and gain an advantage in
a cheap rate, for example, to interconnect to a local phone
company.
Number 1574
REPRESENTATIVE PORTER referred to the issue of the local exchange
competing and blossoming out into long distance and asked what in
HB 531 provides for that.
MR. FOSTER referred to page 15, lines 4 and 5, and said that is the
vehicle.
Number 1574
REPRESENTATIVE PORTER said without those two lines, ATU would be
precluded from getting into long distance.
MR. FOSTER said he would characterize it as saying they are not
precluded from getting into long distance, but to date the APUC has
not allowed other companies in who have sought to get into the long
distance business. He said he thinks that what the ATA is
attempting to do is send a signal to the APUC that says, "Lets
advance this discussion, let us in."
Number 1615
REPRESENTATIVE PORTER asked if APUC has not been tempted to provide
this access to ATU because of a perceived realistic or unrealistic
advantage that they would have then against their competitors in
the long distance area in that they own the local service and have
somehow controlled the interconnect charges.
MR. FOSTER said, to his knowledge, ATU has not applied for
certification nor has the commission ruled on an ATU application
for certification of the long distance business. He said he thinks
United Utilities has applied to provide service in Prince William
Sound, for example. Mr. Foster said he thinks United Utilities
would say that they attempted to provide service, and GCI
intervened and characterized it as long distance service. In a two
to one decision, the commission said, "No you can't provide this
service," even though United wanted to provide it. He said it is
his understanding that is still pending in court.
Number 1763
REPRESENTATIVE ROKEBERG questioned whether after the passage of the
federal law, would ATU be worth less than $280 million.
MR. FOSTER said, "I think the value of small local phone companies
after the passage of the act is very difficult to determine and
it'll largely be based on their ability to use their brand name to
hold on market share and to get new market share and new services
and, where it's appropriate for them to get into the long distance
business, I think largely what they have to offer is their brand
name, their ability of their people to provide good service. And
if they can make good on that, I think their value will increase,
and if they don't, I think it will decrease."
Number 1854
LEW CRAIG, Alaska Public Utilities Commission, was next to testify
via teleconference from Anchorage.
CHAIRMAN KOTT said Mr. Craig has heard some of the comments
regarding entry into long distance markets by the regional carriers
and asked him to comment.
MR. CRAIG said he would like to comment on the fiscal note.
CHAIRMAN KOTT asked him if he could respond to some of the ideas
that have been discussed on the entry by the local carriers into
the long distance market.
MR. CRAIG said he would defer to the commissioners on that. He
noted the commissioners aren't present.
Number 1918
REPRESENTATIVE ROKEBERG questioned what the APUC is doing in
relation to the federal Act. He also asked if they are making any
recommendations to the legislature or if they are planning to
revisit the existing regulations.
MR. CRAIG explained that the staff is working on a briefing that
will be brought before the commissioners next week.
Number 1975
REPRESENTATIVE ELTON said he would hope that the staff work being
done for the commission is done with the idea of providing some
input to the committee as the legislature addresses both of the
bills. For example, if there were a change at the federal level
with insurance laws, he would expect the Division of Insurance to
provide input on how the state could best handle it at the state
level. He said when there is a massive rewrite of federal
telecommunication laws, he would expect that the commission would
be able to help the committee and the rest of the legislature in
best determining how it is dealt with at the state level.
Number 2067
STEVE HAMLIN, President, United Utilities, was next to testify via
teleconference from Anchorage. He read the following statement
into the record:
"I'm Steve Hamlin, President of United Utilities. United Utilities
is a small Alaskan Native owned company. We serve approximately
4,600 customers, located in 58 rural communities. Most of these
communities are located in the Yukon Kuskokwim Delta. They're here
today to testify in favor of House Bill 531.
"House Bill 531 addresses the (indisc.) reserved to the state and
in the recently passed federal Telecommunications Act. House Bill
531 has the support of the 22 members of the Alaska Telephone
Association who now provide local telephone services throughout the
state. We're also here to testify in opposition to House Bill 501,
legislation that has been introduced at the request of GCI.
"I'll first address the GCI bill. If you read the sponsor
statement, it declares that House Bill 501 is needed because
without it the entire state could be exempted from competition.
This position, however, is in direct conflict with the federal
bill. Section 253 of the federal bill removes all barriers of
entry to competition and it preempts the state or local governments
from erecting barriers to competition. In other words, GCI's claim
that its bill is needed to prevent the entire state from being
exempted from competition is incorrect and misleading.
"If the GCI bill is not needed to provide for competition, then why
is GCI seeking legislation. To answer this question you need to
carefully look at the federal Act and ask yourself, `What is it in
the federal Act that GCI doesn't like?' I refer you Section 251 of
the Act, this section gives the state the ability to determine
whether it is in the public interest to require a rural telephone
company to make investments so that GCI or another competitor can
use the rural telephone companies network to compete with it for
federal high cost assistance. GCI unsuccessfully lobbied Congress
to be entitled to force a rural company, even though it may not be
in the public interest, to make these investments and provide
interconnection. Now GCI is asking a state legislature for this
same entitlement.
"Would the public interest be served by requiring United Utilities
to make investments in its facilities in communities like Arctic
Village where we have 27 customers so that GCI can compete with
United for federal high cost assistance. The state is fortunate to
have any federal high cost support for telephone service at Arctic
Village and the over 200 other similar locations throughout the
state. There has been and there will continue to be a limited
amount of federal high cost assistance available to provide
telecommunication services in rural Alaska. The state, under the
federal Act, has some ability to ensure that this federal and also
state high cost assistance isn't wasted on duplicate facilities and
services. GCI clearly wants to be able to gain the high cost
assistance mechanisms so that it can take this assistance from
existing carriers."
MR. HAMLIN informed the committee that last week I had discussions
with GCI personnel and if you look closely at the GCI bill, House
Bill 501, number (2) under the findings, it says, "facilities-
based, local exchange telephone service should be provided
competitively throughout the state;". This includes Arctic Village
and the other over 200 locations where there is hand full of
customers. Mr. Hamlin gave testimony as follows:
"It is clear to us that House Bill 501 should be dropped from any
further consideration unless this language can be tempered. We
asked GCI if that language could be tempered and their answer was
`No.'
"The federal (indisc.) has reserved to the state a number of areas
that the state now needs to address to implement the act. These
areas include eliminating barriers of entry to the instate long
distance market to moving (indisc.) APUC regulations that do not
permit pricing flexibility and timely processing of utility
applications in universal services.
"House Bill 531 addresses all these areas. One example of the
inequities between existing state policies in the federal Act is
the pricing of wholesale services. Under the existing policies,
long distance carriers are able to establish wholesale rates that
are greater than their retail rate. Both exchange carriers,
however, are prohibited by the federal act [End of tape...]
TAPE 96-19, SIDE A
Number 001
MR. HAMLIN continued, "...playing field larger companies like AT&T
and GCI will be able to drive small companies, including United
Utilities and other customer owned businesses out of business which
will result in the long term with less competition, fewer customer
choices and more costly service. Since the FCC will be adopting
regulations in August to implement the interconnection provisions
of the federal Act, it is imperative that the legislature draft, in
this session, the state's responsibilities and eliminate the
barriers of entry to long distance, provide existing carriers with
the ability to compete by doing away with monopoly based
regulations and ensuring the universal service.
"House Bill 531 clearly addresses these issues and we
wholeheartedly support its passage. Thank you for this
opportunity, Mr. Chairman and committee members. United would like
work closely with the committee on this important piece of
legislation. I'm now available to answer any questions that you
may have."
Number 151
DOUGLAS NEAL, General Manager, OTZ Telephone Cooperative, testified
via teleconference from Kotzebue. He said HB 501 looks as if will
openly disconnect many of the members of OTZ Telephone Cooperative
to the rest of the world. Because this will happen under the feel
good title of competition, it will be O.K. If we really want to
keep rural Alaska connected to the rest of the world, there needs
to be some safeguards that doesn't allow that to happen. Mr. Neal
said the concern he has is mostly in the area of bypass. He
pointed out that OTZ Telephone only has a couple of high volume
users in Kotzebue and his concern is that even a competitor that
comes in to compete with them by resale -- the offer, for example,
a competitor who intends to cherry pick their high volume business
users could offer local telephone service at $30 per month which is
significantly higher than what is currently being charged. Their
intent is not to pick any of the residential subscribers or the
business in the villages, but with the intent of picking up OTZ's
three high volume users in Kotzebue. This competitive access
provider will then bypass OTZ's footage and, therefore, not have to
pay any of the access fees that are generated by those minutes of
use. The competitor makes his money by paying himself the access
charge that he would have paid OTZ. OTZ will still have the same
switch, the (indic.) plant and will still be responsible for
serving the villages. The net effect of competition, in his area,
if it is not done right will be that local rates will rise and many
people will be unable to afford a telephone. The rural exemptions
and safeguards that are included in the recently passed federal
legislation needs be part of any serous state telecommunication
bills.
MR. NEAL referred to local rate adjustability and said that sounds
good if you're in Anchorage. He explained expenditures for OTZ
Telephone last year was approximately $2.1 million only $500,000 of
that actually came from the local users. The other came from
access revenues. If someone interconnects with them, their resale
(indisc.) are on a wholesale basis and then still manages to take
their high volume users in Kotzebue, they will still (indisc.).
Mr. Neal also pointed out they are trying to offer internet. He
stated he is personally taking names of people in Kotzebue who are
willing to spend $45 a month to connect to the internet. Mr. Neal
said they are trying to do a lot of things in the rural areas and
unless they have the financial support to do it, they are going to
be in real trouble. He thanked the committee for listening to him.
Number 500
JIMMY JACKSON, Attorney, GCI, said he is in support of HB 501 and
is against HB 531. Mr. Jackson read a statement into the record:
"I am here to testify in favor of House Bill 501 and against HB
531. As it has been pointed out, the telecommunications bill has
passed Congress. It did so by overwhelming margins and it did so
with the strong support of Senator Stevens. The central purpose of
that bill is to open all telecommunication market to competition.
Why did they do that? Because in the past 20 years, piece by piece
the telecommunications market has been opened up to competition and
in every single instance, that has resulted in lower prices and
better service in an expansion of the market. There have always
been people who say it would be a disaster but they have always
been wrong.
"Looking at what has happened so far, Congress determined in the
remaining (indisc.) markets, including local the local service
market, competition will bring the same benefits it has brought to
the other markets. And we're not just talking about maybe getting
a local phone for $1 a month less. Just as competition has taken
us from the black rotary dial phone, which used to be your only
choice, to fax machines and computers hooked up to your phone line,
competition in local services will bring new services and better
quality services.
"So the federal bill opens all markets to competition, but it
allows implementation of that to the state and to the state APUC,
and there will be people who will go into the state APUC and say,
`But those people in Washington don't understand Alaska so you
should put as many roadblocks as you can in the way of competition
in Alaska.' They cannot forbid it but they put up barriers.
"The purpose of this legislation is to make policy decisions.
Competition and local services will have a beneficial affect.
There has been a lot of talk about the exemptions. This bill does
not take away any of the exemptions that are in the federal bill.
The APUC will have to address those exemptions, but it will do so
if the state policy, in its mind, that competition is in the public
interest. The standards are technical standards such as, `Is it
technically feasible and is it economically burdensome.' Those are
good standards but they're going to have some discretion, and
someone who looks at that question through the eyes that
competition is good, in general, may come to a different result
than someone who looks at that question through the eyes of
thinking competition is going to be a bad idea. So this makes the
policy statement which the APUC will keep in mind as it addresses
those exemptions but it does not take any of those exemptions away
from anybody. Those exemptions are not exemptions to competition.
Those exemptions are exemptions from the particular interconnection
modes and number portability and dialing parity which will make
competition look better, but they're not competition itself."
Number 765
MR. JACKSON said there has been legitimate concerns expressed
regarding cherry picking. The federal legislation, Section 253,
has specific protection against cherry picking. It says that when
ever someone comes to the APUC and asks to provide local servicing
competition in a rural market, the APUC can say, "You are required
to serve the entire market if you're going to go into competition
with that company. He noted the APUC has specifically been given
that authority to require any competitor to serve the entire
market. Mr. Jackson referred to the universal service fund and
said there is extensive language in the federal legislation
designed to protect universal service even with competition. He
noted Alaska also has two statutes, AS 42.05.145 and 42.05. 840, on
universal service.
MR. JACKSON referred to long distance competition and said there
has never been an application by a local exchange company to
provide long distance service filed at the APUC until recently by
United Utilities and that is still pending. Mr. Jackson referred
to when the commission adopted regulations pursuant to the
legislation passed by the legislature in 1990, they made sort of a
short form application for entering into the long distance market.
They said, "Local companies can apply, but they can't use this
short form. They have to use a longer form." They didn't say,
"The local exchanges can't compete," they said, "When you come in,
there is a couple extra things we're going to have to look at."
Mr. Jackson said there are no barriers in law to ATU or others
going into interstate state long distance competition.
MR. JACKSON said there was the question about if you're talking
about an area where it's already getting a subsidy and the price is
below the cost, how can a competitor coming into that market help
anything. He said it can help a lot because in economic terms, if
not legal terms, the universal service fund is a tax. People all
over the U.S. pay a little more on their phone bill to support
places where it's expensive. Mr. Jackson continued to give an
example of how this would work.
MR. JACKSON said an excuse used for a long time to keep GCI
entirely from providing long distance was, "Can't work in rural
Alaska." That phrase was also used later to keep GCI out of the
smaller area in Alaska. GCI is currently in the process of
investing between $50 and $20 million in the upcoming summer to put
in facilities in 50 very rural villages in Alaska which will
upgrade the long distance phone service that they have to be better
than they have ever had before. It will eliminate double saddle
hops in the rural villages where it is installed.
Number 1107
MR. JACKSON referred to HB 531 and said there has been the idea
bounced around that the legislature should give policy direction to
the APUC and GCI does agree with that, but HB 531 doesn't give
policy direction. It tells the APUC how to dot its I's and cross
its T's. In fact, it micro manages. There has been a lot of talk
about HB 531 having to do with the federal legislation. Mr.
Jackson said he sees a number of things in the bill that has
absolutely nothing to do with the federal legislation. It
reverses, legislatively, existing decisions of the APUC. It also
repeals a key element of the legislation from 1990 that established
long distance competition. If HB 531 becomes law, there will no
longer be real competition in the long distance business in Alaska.
There are things the bill does do to address the question of local
exchange competition. In short, it is an attempt by the local
telephone companies to exempt their market from competition and
puts up barriers that go far beyond and are inconsistent with what
is in the federal legislation. Mr. Jackson said the legislation
has the theme of rate flexibility to face competition. He said his
company doesn't disagree with the concept that when the companies
face competition, they will need some ability to change their
rates. However, that doesn't mean that when someone starts selling
tin cans and string on the corner, that you suddenly deregulate the
existing utility. Mr. Jackson said the APUC dealt with this very
well when Alascom and GCI started competing with each other.
Number 1345
MR. JACKSON said, "Without a 26 page bill, but relying on only two
things, an existing law that says the commission can waive any rule
or regulation that they want to, that is AS 42.05.711(d), relying
on that and relying on the language that said, `They should oversee
competition to ensure that it is fair to both competitors,' which
is a component of our proposed legislation on competition, the APUC
established the rule for Alascom and for GCI that either one of us
could change our rates on 30 days notice to the commission and that
if the commission did nothing the proposed rates went into effect.
The only exception to that was if Alascom wanted to raise existing
rates. Any decreases and any rates for new services or repackaged
services went into effect - is worked fine. There have been
extremely few instances which any rates by anybody has been
rejected under that provision. Did not need a 26 bill in order to
do that. They needed existing law plus the one rule which is also
in the proposed 501 that they oversee competition to make sure it
fair to both (indisc.)."
MR. JACKSON referred to forbearance and said it is frequently
talked about. It means the APUC shouldn't regulate in instances
where it is not needed anymore for competition. He pointed out
711(d) says they can exempt any utility from any requirement of
state law or regulations if they find it is no longer needed if the
exemption is in the public's interest.
Number 1357
MR. JACKSON explained HB 531 has instances where it establishes
very short time frames for commission action. Those time frames
are meant to address what, to some extent, is a problem. He said
sometime the APUC takes too long to make decisions and there needs
to be incentives to speed up. The problem with the remedy proposed
is very short time lines, and if the commission doesn't act within
a certain amount of time, the utility automatically gets what they
want no matter what they ask for. Consumers should not be punished
because of the fact that the utility hadn't gotten around to doing
its job either.
MR. JACKSON said if HB 531 passes the following three things will
happen. Real long distance in Alaska will be over. The service
currently provided by Alascom and GCI will be taken over by the
local exchange companies and each of them within their own area
will provide the functional equivalent of long distance service.
They will carry the call and people will have to pay them for doing
that. Mr. Jackson said the second thing that will happen is local
competition will be discouraged and Alaskans will be denied the
benefit of that competition as the rest of the nation passes us by.
Third, even though they may be facing very little actual
competition, local telephone companies will gain a vast amount of
freedom to adjust their rates when it is not necessary for them to
have the freedom because they don't really face any competition
yet.
Number 1471
REPRESENTATIVE PORTER indicated confusion. He said he has two ares
of concern. He questioned where the three items exist in the bill.
He said, "From hearing both sides now on the two issues of `Can
local exchanges compete with long distance carriers?' Kind of what
I'm hearing is semantics that this bill, 531, makes it clearer and
I did read that in the line that say that they may, but from what
I'm hearing, although they've never applied, there isn't a bar -
just a couple of extra hoops that they'd have to provide."
MR. JACKSON said that is correct.
REPRESENTATIVE PORTER said, "To me, having lived on the Anchorage
Assembly through phone wars one and two, I'm getting the same
impression what two sides are saying is somewhat the same but a lot
of people are making money talking. Let me just finish. The
second one - as to the public interest finding basically 531 is
gunna require a public interest determination on each case by case
bases and the other bill says, `Lets just say that its competition
is in the best interest of the public' and let that be done and not
have to reprove it on every case. But if universal service is a
requirement, and in those cases where the concern exists that a
small local carrier has got a concern that some big GCI, or
somebody like you is gunna come in and cherry pick, there is
provisions that disallow that. And universal service being
required, would require that you provide service to everyone or a
competitor do that anyway."
REPRESENTATIVE PORTER said in a case where that is an issue, would
the commission be required to make a public interest determination
in each case anyway.
MR. JACKSON said if someone wants to go in and compete with a rural
local company, the question does not come up as to whether or not
competition in that locality is in the public interest in terms of
their ability to go in and compete. He noted that question does
not come up under existing federal law. The federal legislation
says there are obligations of local carriers and they have to do
with allowing the other person to resell your service. In other
words, he uses your facilities and resells. It has to do with
number portability which means a customer can change from one
carrier to another carrier but keep the same telephone number. Mr.
Jackson also referred to dialing parity, access to rights-of-way
and reciprocal compensation and said those are five duties on local
exchange carriers. The exemptions have to do with those five
things and another list that follows of six other things. The
existing carriers can become exempt from the obligation to resell
and for the obligation to provide number portability. It cannot
become exempt from the question of whether or not it faces a
competitor. He indicated if a competitor wants to go into the
market without resale and number portability, they have the right
to do that and nobody can stop them. The APUC can require them to
serve the entire area rather than cherry pick.
REPRESENTATIVE PORTER asked if the argument isn't going to come
down to whether they have to serve the entire area or not. He then
asked if that is the case, whether the competition is good or bad
in that particular region.
MR. JACKSON said he doesn't think so, but noted he thinks that will
be an issue.
REPRESENTATIVE PORTER said, "It would be an issue I would raise and
pound hardly on the table to ask APUC to judge on if I were that
perceived threatened smaller local carrier."
MR. JACKSON said it is likely to come to be an issue when someone
comes in. He said what he doesn't think is going to be a major
issue is in most instances they're going to make that decision and
it is not going to be a real question that the commission is going
to require them to serve all the areas. The state legislation does
not affect the commission's ability to make that requirement.
REPRESENTATIVE PORTER said if it doesn't, what's the big deal.
MR. JACKSON referred to the items he listed earlier which were the
resale, the reciprocal compensation, and said the items where there
is an exemption possible a competitor can come in without those
things but competition is going to have a real hard time prospering
if you don't get some of the items like the number potability. He
said the point of the legislation is for when the local exchange
companies in and say, "Don't make us give em number portability,
don't make us resell." The commission approaches that question
having the policy guidance that competition will be in the public
interest if it is implemented. They will still look at the
technical feasibility and the economic burden, but will do so
through glasses which have the public policy determination that
competition will be in the public interest if it can be
implemented.
MR. JACKSON referred to long distance and said on the federal
level, if the customer wants to make calls to San Francisco or New
York, then the extra hurdle in existing state law doesn't apply.
He said he guesses there will be some guidance about what is going
to happen at the state level after the APUC deals with United's
application. He said he really thinks it is untested as to whether
or not the extra hoop they've got to go through is an easy one or
a hard one to get through.
MR. JACKSON referred to the existing rule on long distance and
referred the committee to page 13, Section 22 of HB 531 and said
these are the findings that the legislature made five years ago
regarding long distance competition. Number 2 is if facilities
based long distance telephone service should be provided
competitively wherever possible. He said they want to take out
"facilities based" which means that GCI can't put in its own
facilities somewhere. It has to buy the service from someone else.
Mr. Jackson referred to page 15, Section 24 (d), and read, "a
telecommunications carrier may designate the first point of
switching where the carrier elects to provide equal access through
a centralized equal access arrangement." He also referred to
subsection (f) and read, "In this section, `centralized equal
access arrangement' means an arrangement in which communications
traffic is routed to a centralized equal access switch." Mr.
Jackson said that is complicated language. What that language
means is the local company can tell GCI and Alascom that you
interconnect with us in Anchorage. You handle all of the calls off
to us in Anchorage and we will carry it to Galena or Bethel or
Fairbanks. We will be the only person who carries that call
between those two locations and you have to pay us. He said they
have created for themselves a monopoly in long distance service.
Number 2090
REPRESENTATIVE THERRIAULT referred to Section 4 on page 2 and said
it talks about the responsibility of the communications carrier
section. He said the current way he sees things working is the
provider comes in and they want the highest rate possible. The
APUC staff, by existing statute, says, "You put together your
recommendation to the commission, the lowest practical rate," and
the commission picks something in between. Representative
Therriault said they probably would pick the just and reasonable
rate. He said, "What this bill asks us to change statutes to is
you no longer have the highest thing advocated and the lowest thing
advocated and the APUC will pick somewhere in between. It changes
that lowest, moves it up to now the just and reasonable rate. So
it seems like that mixed rate which I think is against the intent
of competition, bringing rates down, bringing new services in. I'm
just wondering if I read that right?"
MR. JACKSON said that is exactly right. He explained under the
present law, the staff of the APUC presents the case against the
utility and argues for the lowest that they can reasonably argue
for. The duty of the commission under the law is to set a just and
reasonable rate. He explained the bill shifts the adversarial
process.
REPRESENTATIVE THERRIAULT said the only potential benefit he could
see is that would help get to a decision or a rate decision
quicker, but possibly a higher rate.
MR. JACKSON said that is conceivable.
Number 2112
JIMMY WOODIN, Director, Government Affairs, AT&T, came before the
committee to testify. He noted he has been coming to Alaska also
and has mostly been working with the federal delegation and the
state office on the federal legislation. He said he resides on
Olympia, Washington.
MR. WOODIN said although his company supports the intent of HB 501
and believes in competition, they are not sure the goals are clear.
There is a lot of interpretation of what that bill does or doesn't
do. He stated they are neutral on HB 501.
MR. WOODIN said his company opposes HB 531 because they think it is
taking us in the opposite direction from where telecommunications
is going throughout the country. The Telecommunications Act
essentially does three things: (1) It makes full competition a
model for telecommunications markets; (2) It flatly declares
universal service will be maintained; and (3) By achieving these
overriding objectives, we get minimal government regulation and we
try not to micromanage this industry. Mr. Woodin explained in the
marketplace we have consumer driven markets. He questioned why we
made this policy decision as a country. We've got to always keep
these in line and in front of us. He said consumers are supposed
to be winners. This isn't about market share, this is about what
benefits people the most, how do students learn the best, how do we
get the kind of energy in telecommunications that we have in the
computer industry these days. So consumers are intended to be
winners, but number two is world class telecommunications are
essential in this next century's economy. We have to be connected
to each other inside our states and we have to be connected to the
rest of the world. This is an enabling industry and a lot of
commerce is going to be supported by this industry and the reason
the Telecommunications Act of 1996 was passed to make sure this
country and state maintains its lead in telecommunications.
Number 2249
MR. WOODIN explained there are a lot of provisions in addition to
the number that have already been testified to, some are even
Alaska specific, to assure that universal service is maintained.
The details of that process will be over a 15 month process. He
said we'll see the outline thoroughly from the Joint Board FCC in
November. It is the universal service fund that is supported by
all telecommunication providers as well as AT&T and it is likely to
be larger. He stated there are a number of provisions about rate
averaging and rate integration that are designed to provide support
to high cost areas in Alaska. He also pointed out that the other
thing in the federal legislation is the most careful most lengthy
transition from monopoly to competition is really in most of the
state of Alaska, the 22 companies we've already talked about.
These process are not automatic, they're lengthy. This is
important because Alaska's economy is important and the people of
Alaska are important. He said he would like to leave three
principles when deliberation begins on these policy issues. The
first is in each of the issues in question, put the consumers
first. Is this going to benefit your consumers. Mr. Woodin said
what was really unique about this Act is it is set up to promote
cooperation and sharing with the companies. AT&T getting into
local is about reaching an agreement with ATU to buy ATU's services
on a wholesale basis and sell them on a resale basis. The benefit
for ATU if they do that they get largely deregulated much sooner.
MR. WOODIN said we should be encouraging, as public policy people,
that companies cooperate, communicate, interconnect and make their
services more useful for their customers in their territories. He
noted the House Republican members really pushed voluntary action
over governmental action as it will be the fastest road to minimal
government regulation.
MR. WOODIN said thirdly, learn carefully about these issues. A lot
of change is happening but it takes a long time for this change to
be implemented. Wise policy decisions need to be made that will
stand the test of time. It really matters because Alaska's economy
matters. Very careful, balanced decisions need to be made.
MR. WOODIN said AT&T is supporting a process where they would like
to communicate well to all the telecommunication companies in the
state, they would like to get fully informed on where the FCC rule
making is going, they would like to understand the Joint Board
recommendations on universal services and work in a cooperative way
with people to come up with policy recommendations that make sense
for Alaska's people and economy.
REPRESENTATIVE ROKEBERG referred to the Joint Board and asked if it
is on the universal service access fund.
MR. WOODIN said it is a combination of state and FCC commissioners.
It is an overall 15 month process. They make recommendations on
the real details of the universal service fund that is intended to
have everybody contribute to it. He said it is likely that the
fund will be larger than it is today, but it will be competitively
neutral.
TAPE 96-19, SIDE B
Number 050
REPRESENTATIVE ROKEBERG referred to the six month window and asked
if the APUC is in a position under the federal statute to rule on
any controversy between a bargain that is striked between ATU and
AT&T.
MR. WOODIN said there are number of scenarios that make the
negotiation process if it is agreeable and people get together
quickly, it can be a six month process. It can also be a two year
process with all the contingencies that happen. The parties are
supposed to get together voluntarily, if they can't then they go to
government to seek help.
REPRESENTATIVE ROKEBERG said barring an agreement between AT&T and
ATU for the use of their facilities, can either company file with
the APUC for some adjudication of the conflict.
MR. WOODIN said he believes that in 135 days if the commission
determined that the waiver provisions and exemptions didn't apply
to ATU then AT&T could seek arbitration. He said he isn't sure
that an official negotiation has even began. He said their
announcement across the country in all 50 states was that on March
1, they intended to go into local business. That announcement for
the state of Alaska was limited ATU.
Number 133
GREG BERBERICK, Vice President, Government, Matanuska Telephone
Association (MTA), was next to address the committee. He read the
following statement into the record:
"I would like to thank the Chairman and the members of this
committee for the opportunity to speak to you about the
responsibilities recently passed to you and state commission under
the Federal Telecommunications Act of 1996. I am here in support
of HB 531 and in opposition of HB 501. I believe this legislature
needs to provide the Alaska Public Utilities Commission with the
policy framework necessary to successfully implement local
competition in Alaska. This will not be as simple as the one page
bill some have suggested. It will take a careful and thoughtful
approach. We do not want to leave the job of implementing local
competition to the federal government.
"House Bill 531 attempts to incorporate among others, the issues of
maintaining universal service at affordable rates, pricing
flexibility for competitive services and ensuring a fair and level
playing field in the long distance markets.
"Matanuska Telephone Association was incorporated in 1955 under the
Rural Electrification Act. MTA is a REA coop serving approximately
38,000 subscribers in eleven different exchanges covering an area
of approximately 10,000 square miles. MTA's service area extends
from Clear/Anderson down the Parks Highway through Healy to
Cantwell, Talkeetna, Willow, Big Lake, Wasilla, up the Glen
Highway, or south to Glen Highway Chugiak and Eagle River and north
along the Glen Highway, Palmer, Sutton up to Sheep Mountain. We
also serve the remote village of Tyonek. I mention this to
emphasize the size and diversity of our service area.
"In the past 40 years, MTA has invested nearly 200 million dollars
in infrastructure to serve these rural and high cost areas. We
have made that investment under the mandate of providing universal
service at affordable rates to all those within our service area.
A competitive market changes all of the premises under which we
have operated. The federal legislation and Senator Stevens
specifically both recognize that competition in rural high cost
areas must be carefully reviewed by state commissions to assure
that it is in the public's interest. Alaska's current statutes
were not developed with a competitive market in mind. They need to
be updated. Our commission needs your guidance and direction.
"Though there are many issues addressed in HB 531, I would like to
emphasize three areas which need attention now. The first is price
flexibility in competitive services. Local exchange companies must
be free to compete in services deemed competitive. This means both
the freedom to price according to the market and the ability to
rapidly change offerings without burdensome regulatory filings.
The second is ensure that the local phone companies are allowed to
compete fairly in a level playing field with the interexchange
markets or the long distance markets. Third, this bill is a
competitive bill which seeks to assure safeguards for rural high
cost areas and protect the public interest.
"Finally, I would like to say that I am not an attorney but I do
have twenty years in the telephone business. I represent the
member/owners of MTA who appreciate what this small local telephone
company has done for the communities it serves. I grew up in
Palmer. I personally benefited from the 20 years of employment at
MTA. I know what the jobs mean to our communities, I know what
affordable telephone service means to the small rural communities
we serve. I know what the personal commitment to service and
quality by MTA and its employees has been. That personal
commitment is reflected in our response to individual
circumstances, in our community involvement and assistance and in
the 240 jobs we provide to these communities.
"It is unfortunate that we don't have the luxury of time to develop
this legislation. These are not simple issues. They are complex
and will require the work and dedication of many individuals. I'm
here to offer our support to work with you and your staff to craft
legislation which will bring about new services, affordable rates,
and a continued commitment to universal service and a competitive
marketplace which is truly in the public interest."
Number 341
MR. BERBERICK said, "I appreciated the comments of the last
speaker. I think he did lay out some good principles. However,
when he talked about competition and competition was good for all
of us, I see the Alaska telephone companies as a GAV team and I see
the AT&Ts of the world - the Chicago Bulls. We'd like to compete
on a fair and level playing field with those folks. We think
legislation is needed to make that happen. Thank you very much."
Number 384
There being no further witnesses to come before the committee,
CHAIRMAN KOTT closed the public hearing. He said it is not his
intent to move either bill as the is issue much too important to
act swiftly. There are many areas within the two bills that
competing sides can find common ground. There are also a great
number of experts and resources within the state that can assist in
crafting or amending legislation that will responsibly address the
Federal Telecommunications Act. He then announced the bills would
be put in a subcommittee chaired by Representative Sanders. The
members would be Porter and Kubina. He asked they report back to
the committee not later than April 1.
Number 480
REPRESENTATIVE THERRIAULT noted his concern regarding the length of
time and urged the subcommittee to shoot for something sooner than
April 1.